Based on the case study, Kellogg, the world’s biggest producer of ready-to-eat cereals and convenience foods such as cookies and snacks, is indeed going through a challenging time as amidst its strong presence in the international market, Kellogg has been encountering major competition from left and right.
First off, in the ready-to-eat cereals category, Kellogg is directly competing with General Mills, the Kraft Foods and the PepsiCo’s Quaker Oats. Apparently, the current leader in the ready-to-eat cereals category is General Mills’ brand, Cheerios while Kellogg’s comes in second to this specific competitor. Secondly, in the convenience foods category, Kellogg is directly competing with PepsiCo’s Frito Lay Unit and Kraft Food’s Nabisco both of which are the leading brands in the salty snacks category and the cookies and crackers categories, respectively. Third, Kellogg does not only face tough competition from known brands but also from new entrants in the market whose intent is to merely get a share of the market.
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Apart from the rise of strong competitors, Kellogg also faces pricing issues coming from the pricing pressures it receives from huge merchandisers such as Wal-Mart and Target. Moreover, its product development efforts are not as active as its competitors as its core product lines have been developed almost half a century ago leaving an impression to consumers that the company does not exert much effort in improving its major products. Because of the on-going challenges and issues that Kellogg currently faces, there is a need for the brand to identify the specific areas wherein it should improve as well as areas which offer opportunities for the brand to take back its leadership position in the market.
One of the strengths of the Kellogg’s brand is its strong brand recognition and advertising position which may be attributed to its five-decade presence in the market as well as its extensive international operations in 180 countries across the globe. On the other hand, the Kellogg’s brand is also weak in certain areas including its inability to explore and develop new ready-to-eat cereal product lines in the recent years despite the aggressiveness of its competitors. Also, the Kellogg’s brand is currently weak when it comes to its pricing strategies and is known as a follower rather than a leader when it comes to pricing (Chavda, et al, 2009).
Nevertheless, despite Kellogg’s identified strengths and weaknesses as a ready-to-eat cereal brand and a potential market leader in the convenience foods category, there are still opportunities which the brand needs to tap as well as threats which the brand also needs to avoid in order to get back its market leadership position from its huge competitors. In fact, the Kellogg’s brand has a long list of opportunities which it may opt to utilize in order to regain its top position in the market. These opportunities are as follows:
Further expansion opportunities in the international market
Product diversification and extension of product lines to drive profitability
Development of a better pricing strategy (introduction of low-priced products to capture the low-income market segment)
New market segment opportunities to tap like for instance the growing on-diet and health-conscious consumer segment, and the
Rise of new profitable markets such as China and India (Chavda, et al., 2009).
But while the Kellogg’s brand may be presented with a number of growth opportunities which are beneficial for the brand’s development, there are also several threats which the brand needs to seriously deal with early on in order to prevent these threats from ruining the Kellogg’s brand position in the market. These threats are the following:
General Mills, Quaker Oats and Post’s (Kraft Foods) use of the pricing and product development strategies to eat up the market shares of the Kellogg’s brand
Low-priced and unbranded cereal brands increasing market predominance which causes branded cereal brands like Kellogg to lower its market shares (threat of substitute)
Economic instability which may negatively affect the sales volume of the Kellogg brand due to its high price position in the market, and
The recurring attacks on the cereal meal categories which puts the entire category under question specifically with regard to its “health” benefits, that is, the threat of cereals being classified as “junk food” which destroys its reputation in tapping the health-conscious market segment (Chavda, et al., 2009).
(b) Apply Porter’s Five Forces Model to assess the competitive position of Kellogg. Justify assumption made, if any.
Porter’s Five Forces Model best describes the current competitive position of the Kellogg’s brand as all the five key aspects in Porter’s model explains how the Kellogg brand stands amidst a very high-level competition from other major companies such as General Mills, Kraft Foods and PepsiCo. The competitive analysis of the Kellogg brand using the Porter’s Five Forces Model has been detailed as below:
In terms of competitive rivalry, the industry size of both the ready-to-eat cereal category and the convenience foods category is quite large with very little differentiation among the brands which offer practically the same types of products in the market. In both industries wherein Kellogg is currently competing, competitive rivalry is quite high due to the high demand and control of consumers and the increasing number of substitute brands.
In terms of buying power, buyer choice is very high due to the presence of many substitutes and brands of cereals and convenience foods in the market. However, changing cost is not as strong as expected.
In terms of supplier power, it is the government which controls and regulates the pricing of both the cereal and convenience foods market while the suppliers generally possess no control over the raw materials of these brands’ products.
In terms of the threat of substitute, it is by far, the strongest since there are many low-priced and unbranded cereals that are scattered all over the market, especially among distribution channels, which are readily available to consumers. And finally,
In terms of the threat of entry, the chances are quite low due to the fact that it is costly to enter cereal and convenience food industry as the market is already highly-saturated.
2. (a) Should Kellogg attempt to acquire Quaker Oats from PepsiCo? Would Quaker Oats be a good strategic fit for Kellogg?
According to Wistrom, E. (2010), the Kellogg brand of cereals which operates in more than 180 countries worldwide is already known for more than half a century for its notable products which mainly include breakfast cereal products. Some of these products are the chocos, corn pops, bran flakes, mueslis and of course, corn flakes. Aside from these breakfast cereal products however, the Kellogg brand also sells convenience foods or snack items like for instance cookies, crackers, toasts and many more snack products.
Over the years, the Kellogg brand has acquired several other companies in order to grow its current product lines. Among these acquisitions include the Keebler Company, Bear Naked and Natural Touch which produced additional products for the Kellogg Company such as chocolate corn flakes, banana bubbles and cinnamon mini-bus, among the few (Wistrom, E., 2010). What is interesting about the Kellogg Company is its high level of focus on a specific market segment which is the kids’ segment which made the Kellogg brand alive for many decades.
In fact, Wistrom, E. (2010) states that the Kellogg Company has been consistently confident that the kid’s food market will continue to grow in the coming years due to the rapid increase in the worldwide population. Nevertheless, the Kellogg Company, particularly the Kellogg cereal brand was unaware of the potential huge market segment that it is missing out which is the adult market segment. Most of the Kellogg brand’s products are designed to cater to the young market which therefore allows the brand to not focus on the profitable adult market segment for cereals which is what, one of the Kellogg’s rival brands known as Quaker Oats, is focusing at.
Given this fact, if Kellogg would make an attempt to acquire Quaker Oats from its rival company, PepsiCo, then the Quaker Oats brand would definitely be a good strategic fit for the Kellogg brand and may even be considered to be one of the best additions to the growing product categories of the Kellogg Company. This is mainly because the Quaker Oats brand would enable the Kellogg brand to tap the highly-profitable adult market and increase the brand’s “healthy” brand image.
According to Wistrom, E. (2010), what is good about the Quaker Oats brand is the fact that it has already established a “healthy” brand image and a high-nutrition yet tasty product image in the minds of the consumers through its use of oats as a breakfast cereal meal substitute. On top of that, the Quaker Oats brand is also well-recognized when it comes to producing other healthy snacks such as cereal bars, drinks and mixes which have contributed largely to the brand’s success.
Thus, the inclusion and total acquisition of the Kellogg brand on the Quaker Oats brand would definitely help the Kellogg brand shape its “healthy” brand positioning and brand image to its consumers. Moreover, it will also enable the Kellogg brand to expand its market segment by tapping the adult market segment which is considered to be one of the most highly-profitable segments in the entire cereal industry. Finally, the Kellogg brand’s acquisition of the Quaker Oats brand would certainly grow the Kellogg brand’s market share as the originally acquired market shares of Quaker Oats would be moved or transferred to Kellogg.
Also, since the Kellogg brand is currently weak when it comes to product diversification and product development, acquiring a new product category along with new product lines and brands through the Quaker Oats brand, would enable the Kellogg brand to strengthen its product strategy position in both the cereal and the convenience foods market.
(b) In order to strengthen the strategic fit with Quaker Oats, discuss the key issues that Kellogg should focus on to make the acquisition a success.
Acquiring a huge and highly-competitive brand such as the Quaker Oats from its original maker, the PepsiCo, is going to be one of the most challenging tasks that the Kellogg Company would ever encounter. As argued by Ross, C. (2009), acquiring another company can result to either two things: a discovery of hidden growth and development opportunities for the brand or a creation of a significant number of new problems and concerns for the company intending to buy another company.
Hence, if the Kellogg brand has plans of making its acquisition plan for Quaker Oats a success, it must be able to overcome certain issues that could pose as huge problems for the company should it decide to push through with the plan. First off, acquiring a new company or firm entails a price deal which the Kellogg brand needs to consider given its other options for expansion other than through acquisition. Secondly, there are also countless differences in the management style and culture which the Kellogg brand needs to consider should it decide to acquire Quaker Oats. Early on, the Kellogg Company needs to anticipate the management changes in the structure and operations of the company in order to ensure that apprehensions and uncertainties within the company’s internal environment will be avoided (Ross, C. 2009).
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Also, the issue on the timing and speed of the acquisition process must also be planned ahead of time since it might create a negative effect on the operational effectiveness and efficiency of the Kellogg Company. Prior to the start of the actual acquisition process, the company needs to first identify and soften up the small issues or hindrances along the way in order to ensure that the transition process would flow smoothly. Moreover, the Kellogg Company must come up with a solid and implementable Integration Plan to ensure that the current processes and systems of the Kellogg are retained and are successfully combined with the Quaker Oats’ business process (Ross, C. 2009).
Furthermore, in order to strengthen the strategic fit of Quaker Oats within the Kellogg brand, it needs to establish an integration team which will be tasked facilitate the entire acquisition process and solve the important issues and barriers that the Kellogg Company would be able to encounter along the way. This is in order to lessen the issues on incompatibility and unsettled differences as well as organizational issues that might stem from the acquisition or merging process (Ross, C. 2009).
3. What are the pitfalls in strategic planning that management in an organization should watch out for or avoid? Identify any five pitfalls and describe them.
According to Liff, A. (2008), the main reason why pitfalls in strategic planning is almost always present and are usually encountered by organizations is because of the fact that the future is uncertain and that organizations are left with no choice but to simply set its expectations about the future. As stated by the author in his article entitled, “Avoiding eight pitfalls of strategic planning”, the firm always has this huge responsibility of making sure that the business’ future is certainly good and that its strategies will work for the benefit of the company.
Within the company, it is the top management or the board which possesses the sole responsibility of creating a sound and winning strategy by which the business would be able to gain success. However, similar to most plans, not all strategic plans created by the board works for the good of the business. In fact, some of them even cause negative consequences which limits the company from achieving its strategic goals and purpose. Interestingly, not only less experienced companies experience this kind of problems in strategic planning. Even huge and already established companies encounter these difficulties or the so-called “pitfalls” of strategic planning which other companies must be cautious of (Liff, 2008).
Liff, A. (2008) in the same article, enumerates eight pitfalls of strategic planning wherein five of them will be discussed in detail in this paper. According to the author, among the most common strategic planning pitfalls include the following:
Pitfall #1: Use of the “Tip of the Iceberg” Approach
This particular pitfall stems from the fact that many board members and managers within companies consider a specific strategy as simply a small part or fragment of an entire strategic whole. It was likened to an iceberg simply because only its tip is seen by people while all the other parts are submerged deep in the water and are hidden out of people’s sight.
In the context of strategic planning, Liff, A. (2008) argues that many managers believe that the products, services and the programs they create are the backbones of the strategies they are devising when in fact these are the only physical manifestations of the strategy that they have conceptualized. For instance, the Wal-Mart claims “everyday low prices” to all their customers while the truth is underneath this claim is a bigger strategy which includes the Wal-Mart’s inventory and logistics system such as the company’s “cross-docking” technique which enables the business to produce products at lower prices but with high profit margins.
What the first pitfall describes therefore is the fact that the visible strategy is not the entire strategy that companies should be able to apply and recognize. They also need to be aware of the hidden part of the strategy which enables the visible strategy to manifest. Furthermore, they should not fall into the belief that the visible strategies or what can only be seen from the outside are the only ones that matter, managers must also learn to recognize the other strategic attributes and elements that were needed to be present in order to come up with the best strategic formula for the entire firm (Liff, 2008).
Pitfall #2: The Failure to Develop Various Answers for Questions in the Future
Given the fact that the future is indeed uncertain, companies must always be prepared and equipped when it comes to changes that may occur in the future, especially those that may endanger their business’ current position and place it in a risky situation. Thus in order to prevent the firm from experiencing risks and difficulties which may go out of control and eliminate all the uncertainties of tomorrow, the firm must be wise enough to make the strategic difference today.
According to Liff, A. (2008), the only way in order to make this strategic difference is through answering the questions in the future using the context of the present and projecting a wise and sound assumption on how the anticipated risks may be solved through the knowledge of the present. While the truth is that the present cannot exactly speak for the future, it would still be beneficial for the company to prepare itself by answering possible “future” questions in the best way that they can.
Pitfall #3: Losing Sight of the Member
Given the fact that strategic planning not only faces the uncertainties of the future but also faces the fact that the entire strategic planning process by itself is complex, it would be a great sin for the organization to even neglect one of its members. This is because every member plays an important strategic task which the entire organization must not fail to recognize. Instead, the firm must be always conscious of what each member is doing in order to achieve the entire strategic goals and purpose of the organization. An organization’s employees are considered to be the most important members of the strategic planning process as without them, the implementation of any strategy would not be possible (Liff, A. 2008).
Moreover, the recognition of the members of the strategic process may not only be manifested through the firm’s effort of following up whatever task they are doing. It may also be manifested in the way the firm creates the entire strategic plan while keeping their members in mind. It is of great strategic importance for the firm to devise a specific strategic plan that is simple, direct and compelling enough for the members to respond to it and fulfill the tasks they were assigned to fulfill (Liff, A. 2008).
Most importantly, aside from recognizing the firm’s employees as important members of the strategic planning process, the firm must also recognize the importance of their customers in the process. In fact, every goal and objectives set in the strategic plans must be directed towards the achievement of the desires and needs of the customers as they are the ultimate reasons why firms come up with a strategic plan to be fulfilled (Liff, A. 2008).
Pitfall #4: Relying on Anecdotal Information and Opinions
Information is very critical in every strategic plan as it can either destroy or build the entire strategic plan process. For instance, wrong insights and inaccurate information may naturally lead to the organization’s unfulfilled strategic goals and wasted strategic decisions. One of the most common pitfalls among organizations is the fact that organizational members have the tendency to rely heavily on the information being passed to them by their fellow board members which leave no room for validation on whether the information passed on to them was accurate or inaccurate (Liff, A. 2008).
The trouble with inaccurate information is that it misleadingly represents the entire members’ approval on the information being passed on. The tendency therefore for the entire board is to make unwise strategic decisions which may ultimately lead to a failed strategic plan. To avoid this pitfall, the board and its organizational members must always rely only on in-depth, quality and research-based information which have been validated to ensure that entire planning process is built on solid and accurate data which would serve as a guide for successful strategic decisions (Liff, A. 2008).
Pitfall #5: The Failure to Collaborate with Staff
According to Liff, A. (2008), no matter how well planned a specific strategic planning process is, if it is not properly communicated and collaborated with the staff who are in charged of undertaking the process, it will inevitably lead to failure. Based on the experiences of this author, collaboration is one of the most important ingredients in a winning strategic plan. In fact, he argues that it is impossible to implement a specific plan without proper collaboration with the people who are concerned with the process.
The collaboration between the board and its staff is highly important because of three main reasons. One is because it increases the likelihood that a winning strategy is implemented smoothly as each member staff is equipped with the right knowledge and information they need in order to execute the plan. Secondly, collaboration enables a shared understanding to stem from among the board members and the staff which drives the collaborative process as each is driven towards a single shared vision. And third, collaboration improves the relationship between the board and the staff in a way that it makes all organizational members comfortable to seek help, approach and ask questions with one another which is important in order for them to achieve the vision (Liff, A., 2008).
4. Discuss the five steps involved in performing an IFE Matrix.
According to Adam, A. (2010), developing and performing an IFE Matrix which stands for an Internal Factor Evaluation Matrix may be intimidating and confusing in one look. But when the steps to performing this matrix has already been identified, one may discover that it is actually easier compared to other evaluation matrices available.
Also, this matrix is not like any other matrix as it is recognized as one of the most effective and highly-popular strategy evaluation tools that firms and businesses from all over the world use in order to assess their current strategic performance. From an outside looking in point of view, this strategy evaluation tool evaluates and summarizes the identified strengths and weakness of a firm in terms of very specific functional areas in its business (Adam, 2010).
What is also interesting is that this tool provides an evaluation of the strategic relationships that exist within a firm pointing to the causes and culprits of specific issues and concerns that the firm almost always encounters. Nevertheless, an intuitive mind is required when it comes to performing or developing an IFE matrix as one needs to use a scientific approach in conducting the evaluation or assessment (Adam, 2010).
Also, a thorough and sufficient understanding with numbers is required for anyone who intends to perform and develop an IFE matrix. An IFE matrix can be developed in five easy steps which are enumerated below:
First, the key internal factors need to be identified and listed as part of the internal audit process. A total of ten to at least twenty internal factors must be identified, mainly including the strengths and the weaknesses of the firm. Also, when identifying the firm’s strengths and the weaknesses, one needs to be specific when it comes to the numbers, ratios and percentages in order to present the data clearly.
Second, each factor needs to be assigned with specific weights which range from 0.0 (indicating “not important”) to 1.0 (indicating “all important”). Each weight assigned to a specific factor is indicative of that factor’s relative importance to the firm’s success in the industry, regardless of it being a strength or a weakness of the firm. The rule states that the sum of all weights must be equal to 1.0.
Third, each factor needs to be assigned a rating (which ranges from 1 to 4) to indicate whether that specific factor represents a 1 rating (corresponding to a “major weakness”), a 2 rating (corresponding to a “minor weakness”), a 3 rating (corresponding to a “minor stregnth”), or a 4 rating (corresponding to a “major strength”). This therefore implies that strengths may only receive either a 3 or a 4 rating while weaknesses may only receive either a 1 or a 2 rating. The ratings are therefore based on the company’s identification as compared to the second step wherein the ratings are industry-based figures.
Fourth, each of the factor’s weight is to be multiplied to its ratings in order to determine or identify the weighted score for every variable.
And fifth, the sum of the weighted scores for every variable must be identified in order to determine the total weighted assessment score for the entire organization.
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